Deutsche On Michael Kors Q2: It's All About The Comps

Kate Spade & Co KATE's stock was hammered last week after the company reported a disappointing second-quarter earnings print. Up next to report earnings in the fashion and accessory space is Michael Kors Holdings Ltd KORS, as the company is scheduled to report its first-quarter results on Wednesday.

Related Link: Attention Luxury Investors: Kate Spade Just Reported Q2 Results

According to Dave Weiner of Deutsche Bank, Kate Spade's comps miss certainly "dampened" the sentiment among its peers but Michael Kors' comps should meet expectations. In fact, the analyst stated that the main "focus" of the earnings print will be yet again on comps.

Weiner stated Michael Kors is operating in a "difficult" environment; the bar for success is "clearly much lower," as management guided to a deterioration of comps in the first quarter.

The analyst also pointed out that Kate Spade's management "seemed surprised by the extent of slower tourist traffic" in the United States, but Michael Kors' management team "repeatedly discussed tourism and has already more so factored that slowdown in its plan."

Looking past the first quarter, Weiner stated that Michael Kors' set-up for the remainder of the year "improves somewhat." Specifically, average unit revenue (AUR) pressure "should begin to subside" in the second fiscal quarter, as the company laps the trend-shift to lower priced and smaller handbags. In addition, the company will introduce higher price point bags for the fall season.

On the other hand, Michael Kors' European operation "could be an incremental downside risk" given the continents concerning macro-economic environment and the uncertainty caused by the Brexit vote.

Shares of Michael Kors remain Buy rated with a $56 price target.

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